5. Should the Commission Exclude Specific Bundled Customers or
Electricity Consumption from the Bond Charge?
A central issue to the development of a surcharge to recover bond-related costs is determining who should pay these costs. As noted above, R.02-01-011 is determining whether and how DA and departing load (DL) customers should bear responsibility for bond-related costs. This proceeding, in contrast, will set the methodology for calculating a bond charge that those responsible for bond-related costs should pay. As a consequence, legal and policy arguments concerning whether DA or DL customers should pay bond-related surcharges fall outside the scope of this proceeding.
We do address whether certain bundled customers should pay for bond-related costs. In particular, we must determine the responsibility of CARE-eligible customers, residential customer usage below 130% of baseline, and medical baseline customers for the payment of bond charges.
Currently, these customers (and associated usage) are exempt from the 3 cents/kWh surcharge the Commission adopted for PG&E and SCE customers21 and from the 1.46 cents/kWh rate increase the Commission adopted for SDG&E customers.22 Furthermore, California Water Code Section 80110 states:
" . . . In no case shall the commission [California Public Utilities Commission] increase the electricity charges in effect on the date that the act that adds this section becomes effective for residential customers for existing baseline quantities or usage by those customers of up to 130 percent of existing baseline quantities, until such time as the department has recovered the costs of power it has procured for the electrical corporation's retail end use customers as provided in this division. . ."
As the July 26 ALJ Ruling noted, the interpretation of this statute may be critical to determining the size of the bond charges and the methodology for setting such charges. The ALJ Ruling also set the issue for briefing and resolution in this proceeding.
We therefore turn to the question of whether to exclude this usage from bond charges, and whether this exclusion rests on policy or legal grounds.
A. Positions of Parties
SCE, ORA, and TURN urge the Commission to exempt residential sales below 130% of baseline, medical baseline, and CARE customer usage from the bond charge.23
Concerning the interpretation of Water Code Section 80110, SCE, PG&E, California Large Energy Consumers Association (CLECA) and Energy Producers and Users Coalition (EPUC) state that it would be possible to assign responsibility for the bond charge to residential sales below 130% of baseline as long as some other charge is reduced. SCE and PG&E note that it would be possible to dedicate a revenue stream within their current rates to pay for the bond charge and to adopt offsetting decreases in charges, thereby complying with the statute. CLECA and EPUC argue more broadly that all utilities can accommodate a bond charge within their current charges. PG&E, CLECA, and EPUC argue that the bond charge should apply to all usage.
SDG&E also argues that the bond charge should apply to all residential usage, but it does not argue that it can accommodate such a policy within its current charges. Instead, SDG&E concludes that Water Code § 80110 no longer applies:
"Once the bonds are sold, DWR will have recovered those costs, to wit, the costs of power it has procured for the electrical corporation's retail end use customers. Buyers of the bonds will have provided the costs of power procured by DWR. Thus, this provision of Water Code 80110 will no longer restrict the Commission after the bonds are sold."24
SDG&E then states that exempting customers using less than 130% of baseline has no basis in costs. SDG&E further argues that such a policy will cause "an additional $16 million in annual residential commodity shortfalls."25 SDG&E concludes that such a policy may increase the existing business to residential subsidy "to well over $50 million per year."26
ORA, TURN and SCE take exception to SDG&E's interpretation of Water Code § 80110. SCE argues:
"Paying back the general fund and interim loan from bond proceeds is not `recovery' of those amounts; collection from end-use customers of the Bond Charge is the actual `recovery.' SDG&E thus incorrectly interprets Water Code Section 80110, when it concludes that issuance of bonds is tantamount to DWR's recovery of the cost of power it procured and will continue to procure for electrical corporations' retail end-use customers."27
Then, in a case of rhetorical convergence, ORA, TURN and SCE each develop an analogy with the purchase of a home and the obtaining of a mortgage. ORA succinctly argues "[a]nyone knows that the house is not owned until the mortgage is paid off."28
B. Discussion
Section 80110 of the Water Code became effective on February 1, 2001. On May 15, 2001, the Commission both interpreted and discussed at length how to implement rate design changes consistent with this statute:
"This statute exempts from additional rate increases all residential electricity usage that falls within 130% of "baseline" usage. Baseline usage is defined in Section 739(a). That section requires the Commission to establish a quantity of natural gas and electricity that is necessary to supply a "significant portion of the reasonable energy needs of the average residential customer." The "baseline quantity" is defined to be between 50 and 60 percent of average residential consumption, with allowances for seasonal and climatic variations, Section 739(d)(1). The Commission is further directed to require the utilities to file residential rate schedules that provide for the baseline quantity to be the first or lowest block in an increasing block rate structure. Section 739(c)(1). In addition, the Commission is directed to "establish an appropriate gradual difference between the rates for the respective blocks of usage." Section 739(c)(1). In 1986, the Commission determined the initial baseline quantities in D.86087, 80 CPUC 182. Subsequent revisions and updates to the baseline quantities and applicable rates have been made in the utilities' general rate cases." 29
As it interpreted this statute, the Commission noted that the statutory exemption sharply constrained its freedom to design rates:
"Taken together, new Water Code § 80110 and Pub. Util. Code § 739, exempt over 60% of residential sales from the 3 [cents] /kWh rate surcharge we authorized March 27th. The resulting shortfall is significant: 64% of all Edison residential sales are exempt, and 62% of all PG&E residential sales are exempt. These use exemptions result in half of all residential customers--those who use less than 130% of baseline--being protected by statute from further rate increases."30
Subsequently, the Commission adopted a rate design that allocated the substantial revenue shortfall that arises from the exemption to all other consumption. In D.01-09-059, the Commission adopted a similar approach to allocating a rate increase for SDG&E's customers.
We plan to once again follow the policy as required by statute of excluding from additional rate increases residential sales below 130% of baseline, as well as medical baseline and CARE-eligible customer usage. However, this restriction does not strictly preclude imposition of bond charges on some or all of this usage, as long as such imposition does not result in a rate increase. Such a result could occur if newly-imposed bond charges are offset by equal or greater decreases in other changes. Currently, these customers may pay rates in excess of URG costs and other rate elements. Therefore, if bond charges are imposed, it may be possible to do so without raising rates. Further, CLECA, SCE, and PG&E, and EPUC state that the Commission could apply a bond charge to all customers as long as this action does not lead to an increase in rates for the consumption excluded from electricity charge increases by Water Code § 80110.
The policy question is whether these customers should pay the bond charges. In general, all customers who took power from DWR after February 1, 2001 have some responsibility for DWR's costs, from a direct cost-causation perspective. In R.02-01-011, we consider a decision to impose bond charges on direct access customers who took power from DWR after February 1, 2001 because they directly benefited from DWR power purchases.31 Similarly, from a cost-causation perspective, CARE customers, medical baseline customers, and residential bundled customer usage below 130% of baseline all should bear responsibility for payment of bond charges, because they also received power from DWR.32 From an equity perspective, we note that DA (and possibly DL) customers will see rate increases due to the imposition of bond charges, if imposed in R.02-01-011. However, the residential customers discussed herein would not face rate increases even with the imposition of bond charges.
Imposing a bond charge on all bundled customers would have beneficial impacts. First, the remainder of bundled customers would pay a lower bond charge due to the larger customer base which pays the charge. Second, direct access customers would face a lower bond charge for the same reason, if a bond charge is imposed on them. Third, just as imposing the bond charge on direct access customers provides a larger customer base, including all bundled customers provides additional assurance that bond charges will be fully paid.
Therefore, as long as rates do not increase in contravention of AB1X, we should impose bond charges on all bundled customers. However, we will continue to exempt CARE customers and Medical baseline customers from the bond charge, as suggested by AReM/WPTF in their comments on the draft Alternate Decision. As AReM/WPTF notes, there is a "clear and continuous policy of the Commission to protect the interests of CARE and medical baseline customers so that they are...exempt from rate increases arising from the wholesale market price disruptions".
A bond charge on all kWh usage except for CARE and medical baseline customers is possible to achieve without a rate increase for AB1X-protected customers, according to PG&E and SCE. We will require PG&E and SCE, when they file Advice Letters implementing the bond charge, to show that imposition of a bond charge does not result in a net rate increase for residential usage up to 130% of baseline.
As noted above, in response to this dilemma, SDG&E claims that the law does not preclude raising charges on any customers. SDG&E proposes a novel legal theory - that Water Code § 80110 will not apply once the bond sale is complete because at that time DWR will have recovered the costs of the power it has procured. In rebuttal, ORA and SCE convincingly argue that a house is not paid for until the mortgage is paid off, and that DWR will not have recovered its costs until the bonds are repaid.
We find that SDG&E's interpretation does not comport with a reasonable reading of the statute. Thus, we do not believe that we can legally allocate a bond charge that applies to all non-exempt residential customers without also adopting some offsetting adjustment to ensure that charges do not increase on usage by residential customers up to 130% of baseline. In the draft Alternate Decision we proposed to order SDG&E to show whether the bond charge can be incorporated into rates for all non-exempt residential customers without necessitating a rate increase. If this was not possible, SDG&E was to propose to create a balancing account to track any under collections and propose a method to amortize the shortfalls in the Revenue Requirement Phase of this proceeding that would not lead to a net increase in payments for those protected by the statute.
SDG&E, in its comments on the draft Alternate Decision, states that it cannot amortize such a shortfall because "this type of excess headroom is not available" and "will not be there each and every year for two decades hence." Therefore, SDG&E believes creating a balancing account to track any undercollection violates AB1X. SDG&E is not technically correct. It may be possible to impose a bond charge on SDG&E residential usage up to 130% of baseline, because other charges could be reduced in equal or greater amounts to maintain rate levels at today's level. However, such an effort would result in the same outcome for these protected customers as if no bond charge had been imposed, while the displaced charges would be reallocated elsewhere. There is no record in this proceeding as to how we might reallocate other charges, which would have to occur to avoid an unlawful rate increase. It is far simpler to exempt SDG&E residential usage up to 130% of baseline upfront. Thus, SDG&E's circumstances present a special case requiring different treatment from PG&E and SCE.33 With this in mind, we will order SDG&E to impose the bond charge on all residential kWh, except for residential usage up to 130% of baseline and usage of CARE and medical baseline customers.
